They Started With $10,000. Now They're Taking on ESPN

How the brothers behind the scrappy startup FloSports are going big by going small. For now, at least.

"Launching FloSports was like getting on the mat with the big guy when you don't know how to wrestle. You're going to get your ass kicked, but then you're going to get better." - Martin Floreani (left) pictured here with his co-founder and COO-brother Mark.

Mary Kang

At any moment, I'm sure of it, Martin Floreani is going to leap out of his chair, launch himself across the table that separates us, clothesline me backward out of my chair, and pin me to the floor.

At least, that's the look in his eyes, a barely contained animal ferocity. It's not clear whether he combed his hair this morning, he certainly didn't shave, and he has the kind of fixed stare and clenched jaw that you see on boxers when they meet in the middle of the ring before the opening bell. This, it turns out, is his default expression.

What has Martin so fired up began in May 2006, when he burst into his little brother Mark's apartment in Austin at 2 a.m., after driving 1,100 miles, brandishing a prototype of a website that would cover wrestling and running--the brothers' respective collegiate sports--with the same obsessive detail and drama that ESPN bestows on the NFL and NBA. Eight months later, they had their first glimmer of success, when Mark captured on video, in early morning fog from the back of a noisy pickup truck, the record-breaking half-marathon in Houston by a runner named Ryan Hall, who became a star that day thanks to that video. Despite the decidedly lo-fi footage--big blocks of digital fuzz, overwhelming engine noise--within an hour of publishing, the Floreanis had to scramble to add more bandwidth to handle all the traffic. Diehard track geeks, says Mark, "never had anything like that."

Wider success came slowly, but today, the brothers' Austin-based company, FloSports, is one of the most surprising successes in the rapidly shifting sports-media landscape. The company--Martin is CEO; Mark, who's lankier and easier with a smile, is COO--now has 256 employees and runs 25 Web video channels. There's FloTrack, FloWrestling, FloCheer, Flo­Grappling (for Brazilian jujitsu)--even FloMarching and FloDance. Industry giant ESPN is bleeding subscribers at an alarming rate (reportedly averaging more than 300,000 per month); FloSports' subscriptions (which currently cost $150 annually) doubled in the past year, and it's currently adding 30,000 subscribers each month. Its backers include Bertelsmann, Discovery Communications, and World Wrestling Entertainment­.

FloSports, of course, is nowhere near the size of ESPN--the $12 billion giant has several hundred times more subscribers. But while ESPN has long made most of its money from the fees that cable companies pay it, FloSports sells directly to consumers over the internet, giving it a trove of rich user data that TV networks, which don't broadcast directly to their customers, can't match.

Netflix and Amazon have made great headway transforming television's scripted shows. But in sports, the battle is just beginning, largely because the TV rights to most of the major league sports are tied up in long-term deals. As Martin sees it, Flo is conducting a sneak attack on the industry from below. In the next decade, as the likes of ESPN protect their existing contracts with major league sports, Flo aims to get ever stronger at doing things the new way and, the Floreanis hope, to ultimately compete for those rights. "ESPN's not doing enough to disrupt themselves," Martin says. "I don't think they're going to be around in 20 years."

That's debatable, to put it mildly, and ESPN is now investing big in streaming technology. Martin can come off as laughably overconfident (though you might not want to say thatto his face). But there's no debating that he and his brother are on to something big.

Martin, who's 37, wrestled at Cal Poly San Luis Obispo, and his brother was an All-America distance runner at the University of Texas at Austin--their sports of choice apt reflections of their personalities. According to David Altounian, an early adviser to FloSports, "Mark will be like, 'We're going to take it long and slow,' and Martin is like, 'No! I'm breaking down the building!'"

The brothers have been this way since their days as the youngest of five children in the Chicago suburb of Park Ridge. Their father, a hard-nosed Italian immigrant, owned a company that manufactured candymaking equipment, and the boys grew up working in the family business. Mark discovered running early--it was one of the only ways he could compete with his hypercompetitive older brother--but Martin didn't discover wrestling until high school. "I fell in love with the sport," he says, "when I lost my very first match. I could see there were certain times in the match where I had made progress--little bits of success within the loss." So he came away empowered. "Wrestling," he says, "is a sport that exposes all your weaknesses"--which is painful at first but helps you win in the long run. While Martin never became an elite wrestler, he was good enough to start for his Division I university.

Mark walked onto the track team at UT and earned a full ride after two years of impressing the coaches with his stamina. "I wasn't as good as everyone else on the team," he says, "so I figured I'd just train harder. The coach was like, 'If this guy doesn't break, he might be good.' And I figured, if I break, at least I tried." He ran 80 to 100 miles every week and built strict sleeping, eating, and stretching schedules, intent on winning a national championship. But he didn't, and needed some way to channel his energy. Luckily, this was right around the time Martin showed up at 2 a.m.

Martin had gone back to Chicago after college to work for their father's business, with the idea that he'd one day take it over. But he tried to force through big changes quickly, and didn't do nearly enough to bring people around to his ideas. Eventually, his dad had a suggestion: "Why don't you just go do your own thing?"

That was all Martin needed to hear. He'd previously spent a couple of months on the road with a friend who was writing a book about wrestling, and he'd helped interview some legends of the sport. They'd turned up the sort of stories you might see during the Olympics, when Bob Costas cuts to a stirring profile of sacrifice and hardship in some obscure rural hamlet. Come to think of it, Martin mused, the Olympics were pretty much the only time anyone saw such stories about his favorite sport--or many other sports. What if kids could be exposed to more of these stories? What if they could follow such sports more closely--not just the handful of key matches that got the full ESPN treatment?

"There was no reason, to me, that wrestling should be any less of a sport than football," Martin says. "It's an exciting sport when you know the story lines, know who's who in the matchups, understand the underlying aspects of what's going on." He knew Mark felt the same way about track, so he persuaded a young engineer at his dad's company to help create the website. As soon as he had a prototype, he climbed in his old Mazda and headed south.

"It was 2 in the morning when he got to my apartment. My roommates and I were all asleep. He stunk like BO," Mark remembers. But Martin was on fire and couldn't wait for daylight to make the pitch. "Hey, man, I'm doing this for wrestling, and I want you to do it for track," he barked after he'd shown Mark a video of a famous wrestling coach on his cheap website. "This applies to a whole bunch of verticals, and we can do this and really change the sports media world."

They raised $10,000 from friends and family, bought a used Ford Econoline van they found on Craigslist for $3,000, nicknamed it the White Pearl--and saw it break down, with smoke billowing out of its engine compartment, halfway through its inaugural trip. After sinking $1,000 into repairs, they lived a scrappy, hand-to-mouth existence for the next few years, taking turns driving the White Pearl around the country to film wrestling and track events, teaching themselves play-by-play, editing, marketing--everything, really. When Hall set his half-marathon record and traffic soared on Mark's janky video, it proved the thesis. But the hard part wasn't over. It wouldn't be for a long time.

FloSports Figures

84

How many documentaries FloSports will produce this year

1,000

Total number of events that will air on FloSports' 25 online channels this year)

30,000

Average number of subscribers FloSports is adding each month--at $150 per year

$50M

What Amazon is paying to stream Thursday night football games online (which will also air on TV)

39,273

Total miles the Floreani brothers put on their van between 2006 and 2008, when they were traveling the U.S. filming events for FloSports

Sports, as even the most casual fan knows, is best consumed live, absorbing viewers' real-time attention in a way that little else does. That's why the major leagues keep raising their fees to broadcast their biggest games--ESPN pays $1.9 billion per year for Monday Night Football--and why ESPN keeps raising the fees cable companies must pay to carry it. In turn, the roughly 90 million cable subscribers who get ESPN pay around $8 per month for it--five or 10 times higher than what most other channels charge. Those fees bring ESPN an estimated $8 billion per year in revenue.

But ESPN, which declined to comment on the record, has shed more than 12 million subscribers since its peak in 2011--and a recent survey by BTIG Research showed that 56 percent of subscribers would drop ESPN if it meant saving that $8 per month. Meanwhile, cable companies now offer "skinny bundles" of far fewer networks, for cheaper prices. And the costs of ESPN's hard-won broadcast rights aren't falling: Amazon, Facebook, and Twitter are all experimenting with streaming sports, and more bidders can mean the leagues could keep pushing up prices. ESPN's biggest bulwark is that many of its most important TV contracts don't expire for several years. But that could be a trap. In those years, the world will continue to tilt away from cable TV--but the network's deals with the cable and satellite companies prevent it from streaming its biggest games.

Meanwhile, a TV channel has only 24 hours a day to fill, so it has to focus on the biggest events--major sports, and maybe the championships in smaller sports. FloSports can air as much as it can film, and thus allow viewers to dive deep. The audiences are smaller, of course, but the brothers bet that all those niches would add up to a significant business.

In the company's first years, though, it didn't. "Mavens in the sports loved us," Martin remembers, an old agitation still simmering, "but we were just selling ads against the videos, and it became a small, lifestyle business." In 2011, the Floreanis hired an experienced executive to be CEO, who doubled down on the ad strategy. They'd expanded into swimming and gymnastics, but didn't make enough money to grow further and even shut down swimming for a few years.

In 2012--six years in--revenue barely topped $1 million, and Martin was frustrated. "We were starving to fund growth, pouring every dollar back into the company, and it just wasn't what we'd set out to create," he says. He set a modest goal of covering payroll through subscriptions. For 18 months, Martin worked alone--on what would sell, what to charge, enticing people to take the leap. "Nobody was doing subscriptions online at the time," he recalls. "It was really dismissed internally."

By mid-2012, subscriptions were bringing in 20 percent of the company's revenue--promising, but the dollars were still tiny. The brothers huddled and decided to either fold or go all-in on subscriptions. They cut their CEO loose. "It was like getting on the mat with the big guy when you don't know how to wrestle," Martin says. "You're going to get your ass kicked, but then you're going to get better."

Revenue doubled each of the next two years. In mid-2014, they raised $8 million. Whereas the company had stalled out at three channels for years, it now began adding new verticals aggressively. Flo says it will bring in tens of millions in revenue this year and double its subscription revenue. Meanwhile, investors poured in another $21 million last year. Its overall monthly audience is about 8 million, and 80 percent of its content is free for everyone. Live events are behind the paywall, along with technique tutorials and longer-form documentaries. Its fast-growing subscriptions make up about two-thirds of revenue, and, ironically, the company now sees ads as a major opportunity; Quicken Loans and T-Mobile have signed on.

This June 11, in a 7,900-seat arena in Lincoln, Nebraska, the lights went down, a cloud of smoke billowed up, dramatic walkout music swelled, and an announcer bellowed the names of Jordan Burroughs and Kyle Dake. Two chiseled athletes emerged onto a wrestling mat for the third of a best-of-three series that had been hyped for weeks on Flo­Wrestling as one of the biggest and most dramatic matchups of this year's USA Wrestling Freestyle World Team Trials, which determines which eight American wrestlers will represent their country in the world championships. Burroughs was the storyline's veteran champ--but had he aged out of his prime?--and Dake the hungry challenger. After two matches, Burroughs and Dake were tied. Would this final match pass the torch?

Around the arena, a FloWrestling crew of 17 people produced live video and news stories, with two on-air commentators, five cameras, and an 18-foot jib crane for bird's-eye footage. Flo won't share viewership data but says this year's coverage racked up four times as many views as the last one. And the in-person audience was well over twice as large.

"When Flo entered the market and made a legitimate commitment to create this platform that promoted athletes and events, it really started to change the culture, to draw attention to wrestling and develop a following," says Rich Bender, the executive director of USA Wrestling, the sport's governing body. "People could see matches, know what [former Olympic champion] John Smith had for breakfast, how [legendary Penn State coach] Cael Sanderson organizes his practices." That added visibility and polish--what Bender calls its "for-real, ESPN-level production quality"--has directly affected USA Wrestling's fortunes. Student athletes are increasingly being pushed to specialize in one sport, and wrestling's high school participation rate has flattened or even dipped--yet USA Wrestling's budget has more than tripled since 2000, and last year it signed its first sponsorship deal with Nike.

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Flo, thanks to the viewer data it collects, can continually tweak its approach--even in real time during an event. "That's one of the coolest things," says Bender. "Our decisions with Flo revolve around real hard data: how long people watch, what they're most interested in, what they're most willing to pay for. We use that information to help shape our events."

Cable and broadcast networks, having little data besides Nielsen ratings and audience surveys, can't offer that kind of precise measurement and rapid response. But, Martin says, "with each live event, we get more data, we understand more how to produce the right content and effectively monetize the event." As the company gets better at that, and users get comfortable streaming sports, Martin hopes, Flo will be well-positioned as a media partner when bigger rights deals come up.

"If we do those things better than anyone else, yeah, we can do an NFL game," Martin says. "It's not going to be next year, but it could be happening in three years." Mark, seated next to his sibling, flashes a knowing smile. "Maybe five years," he offers helpfully.

Martin Floreani sits onstage at the Times Center, a conference venue at the Manhattan headquarters of The New York Times, for this summer's Hashtag Sports, an annual conference about the future of sports media. For three days, hundreds of executives from ESPN, NBC, the NFL, the NHL, the NBA, and every other league and media outlet and sports investment group mill around, puzzling over the changes rippling throughout the industry. This year the buzz term is OTT, industry shorthand for "over the top," which means video delivered directly to consumers over the internet--FloSports, in other words.

Floreani, stonefaced and wearing jeans and a T-shirt in a room full of shiny TV talent, is about as subtle as you'd expect: "Let's say [ESPN] had the DNA and they said, 'You know what? We want to disrupt ourselves. We're gonna eat shit for three or four years, but we're gonna be around 10 to 15 years from now'--I don't even know if they would be able to do it."

"We were starving to fund growth and it wasn't what we'd set out to create," so the company took a huge risk.

It's no wonder that OTT is on everyone's mind. In 2016, Major League Baseball's streaming service, MLB.TV, was the fourth-most popular streaming service in the U.S., after Net­flix, Hulu, and Amazon Prime Video, according to research firm Parks Associates. Flo investor World Wrestling Entertainment is fifth. Last year, Twitter streamed 10 NFL games that also aired on TV; this year, Amazon will. Those deals are little more than toes in the water, but the thought of Amazon or Facebook getting serious about sports keeps coming up among conference-goers.

Or, as Floreani declares to his Hashtag audience, "when I think about our competitors in five, 10, 15 years, I don't think about ESPN or any of the traditional broadcasters. I'm thinking about Amazon, I'm thinking about Facebook, I'm thinking about Google. Why? Because those companies know how to use and drive their businesses from data."

Either way, it's one thing to give cheer competitions and wrestling tournaments a big boost, and quite another to deliver the audience and experience the NFL demands--not to mention have the dollars required to compete in that realm. The Floreanis argue they're "eating their way up" to larger and larger events, and that the really expensive games won't become available for a nearly a decade, by which time, they say, Flo will be a much more powerful challenger-- the Kyle Dake to ESPN's Jordan Burroughs.

Of course, ESPN isn't sitting still. Its parent company, Disney, recently spent more than $2.5 billion for a controlling stake in BAMTech, a streaming-media company that spun out of Major League Baseball, with the intention of using it to start an ESPN offering next year. CBS also announced this summer that it plans to launch a sports-streaming service. "FloSports will likely never beat ESPN," admits Altounian, FloSports' early adviser. "But can they own [niche] sports? Absolutely. I think they can be the 800-pound gorilla in that market, which is a big niche. Not only are those fans passionate, but they regenerate. Every year, more kids come up into those sports."

Still, one week after the Hashtag conference, FloSports announced the launching of FloFootball, which will air mostly semipro and high school games, seeking to build credibility and eventually get the big games. And one week after that, Flo announced that its 18-month-old basketball channel, FloHoops, had nabbed the rights to the overseas tours of last season's top two NCAA basketball teams, the Arizona Wildcats and the Kansas Jayhawks, and several preseason NCAA games. It wrested those rights from CBS.

Small steps? Sure. But they recall a different upstart's rise. In 1979, a slow-pitch softball game aired on a cable channel's first night of programming. Years of bowling tournamentsand highlight reels followed. It hardly added up to something that looked like a revolution. Until it did. Perhaps you've heard of that quixotic little company. It's called ESPN.